In the eye of the beholder perception is reality. Perception is what counts. This is one of the features that differentiate the management of reputation and its associated risks, from the management of other more tangible assets, says Jenny Rayner in 'Managing Reputational Risk - curbing threats, leveraging opportunities'. It is also perhaps why many organisations have difficulties in tackling this particular aspect of risk management. But they cannot ignore it. 'Like fish in a goldfish bowl, today's businesses are subject to constant, often unforgiving, scrutiny,' warns Rayner.
She points out that there is no such thing as 'reputation risk' - only risks to reputation. The term 'reputation risk' is a convenient catch-all for those risks, from whatever source, that can have an impact on reputation. And, if 'reputation risk' is really 'risks to reputation' in disguise, is the subject not already adequately covered by the numerous books on risk management theory?
Rayner justifies dedicating a whole book to this subject for two reasons. First, reputation is now a key corporate asset - often the single most significant asset a business possesses. Second, although concepts of formal risk management have been around for a number of years, businesses still often find it easier to focus on risks that have a clear and quantifiable financial impact. Risks to reputation which may have 'soft' root causes and hard-to-quantify impacts are frequently ignored, underplayed or, at best sidelined. Often they are shunted into the 'too difficult' pile, as they may require lateral thinking, innovative solutions and, in some cases, a fundamental rethink of strategy. 'This is paradoxical, as significant risks to reputation are often those 'killer risk' that can jeopardise a business's very existence,' says Rayner.
Organisations should ask themselves what is the newspaper headline that they would least like to see about their organisation - and having identified that, consider the underlying risk. Does it appear in the corporate risk profile? Is it discussed in the boardroom? What is being done to reduce the likelihood of it happening? And, if it did occur, what would the impact be and how would the organisation manage the ensuing crisis?
Rayner says that it is important to make reputation risk management everyone's business, in the same way that organisations need to embed other types of risk management. It should be an unconscious competence, part of the corporate DNA. All individuals should take responsibility for the risks in their own area and for identifying and acting on reputational risk to the business as a whole.
And, as with other forms of risk management, the lead needs to come from the top - the board and senior executives who bear ultimate responsibility for ensuring that risks are understood and properly controlled. Non-executive directors should act as conscience-prickers. Here, Rayner believes that the role of board committees, composed either exclusively, or in part, of independent directors, will grow in importance, creating the right sort of climate for good corporate governance and risk management to thrive. They can also help to build the stakeholder trust that is central to a sustainable reputation.
She gives guidance on:
Rayner identifies six emerging strands of challenge and opportunity: high self-esteem; values driven and value driven; visionary and ethical leadership; the new governance, safe havens, and reputation as the cornerstone of business strategy.
Rayner points to the upside of managing reputational risk well. 'In the wake of the US corporate scandals there is a ground swell of rising expectations for business behaviour. Yet this goes hand-in- hand with a deep mistrust of business and business leaders. This gap presents a fertile opportunity to enhance corporate reputation by being reliable, trustworthy, accountable and transparent, and demonstrating this not just by fine words but through positive action. Organisations that actively rise to the challenges presented by these new demands and expectations have a unique opportunity to enhance their reputations. Those that choose to ignore the new imperatives may see their reputations - and their performance and prospects - dwindle.'
The approach the book outlines is particularly relevant in the light of UK government plans to beef up the Operating and Financial Review to include material risks/issues which affect a company's reputation.
'Managing Reputational Risk', price £45, is available from John Wiley & Sons Ltd, Tel: 01243 843921, E-mail: email@example.com
Sue Copeman is editor, StrategicRISK
The perception-based, potentially transient and all-embracing nature of reputation poses particular challenges for directors, managers, auditors and corporate affairs specialists. How can you: